Small Business Bookkeeping

“How do I prep and organize for small business bookkeeping?”

The question above is yet, another one Passion Profit CEO gets frequently working with aspiring and small business owners.

When trying to plan, organize, and manage a new small business, bookkeeping has to fit into the to-do list.

The sooner it is learned & the habit is created to keep it up to date, the better.

How should you prep & organize for your small business bookkeeping?

The answer may surprise you in the fact that it really depends on your business.

Knowing how your business operates allows the process to be so much simpler but don’t fret the tax word should not be terrifying.

With a little terminology, simple video guide, and resources below you will be an accounting rockstar in no time.

Learn the basics to bookkeeping in an interview with ME Bookkeeping expert Marinda Broadbent:

Terminology

Familiarizing yourself with the lingo of bookkeeping & accounting can really be beneficial when utilizing accounting software.

Below you will find some common terms defined so it’s easy to understand.

• Accounts- These are the accounts you use to perform transactions throughout your business. For example, savings account, cash account, business checking account, payment processing account (if it does not automatically transfer and deposit into your business checking), asset accounts, vendor or contractor accounts, etc
• Balance Sheet- The report that shows all the numbers of assets, liabilities, and equity.
• Cash Flow- This is for other cash coming in and out of your business.  Some examples include owner’s deposits and withdrawals, loan principals, uncommon income (you sold one of your assets), etc.
• Expenses- The amount at which your company pays out in order for the company to function. This would include phones, lights, rent, small tools, cost of materials to produce your goods, etc. Commonly known as accounts payable.
• Profit Loss (Income Statement)- It subcategorizes your revenue/accounts receivable and your expenses/accounts payable. It then deducts the expenses from the revenue to give your company a profit.
• Reconciliation- When you compare your bank statement with your accounting software transactions and match to be certain they are accurate with no duplicates or missing transactions. Reconciliation is performed every month.
• Transaction- Any data reported into accounts including a deposit or deduction from income or expenses.

Additional terminology:

• Asset- Anything your business owns of value. This can be physical, tangible goods (vehicles, real estate, computers, office furniture, and other fixtures), or intellectual, intangible items (patents, copyrights, and trademarks).
• Equity- The value you have physically paid for on your asset minus the liability. For example, you buy a car for $10,000 and you have paid $6,000 to the bank loan and still owe $4,000. Your equity would be $6,000.
• Liabilities- What your company owes to others for its assets.
• Payroll- Keep up with who you pay, how much, and the taxes/workers comp for those employees and contractors paid.
• Revenue- The amount at which your company has made by sales and services. Commonly known as income to the company or accounts receivable.
• Sales Tax-  The amount of sales tax collected from sales to your customers and the amount of tax your company paid on purchases.

Simple Bookkeeping vs. Accounting Software

Some factors to think about before deciding on how you will manage your books is to ask yourself these questions:

• What type of business do I have… traditional or virtual?
• Do I have employees, hired contractors, or team members?
• What am I selling? Do I have multiple products or services?
• How do I accept these payments?
• Do I have multiple accounts that the transactions can go into?
• Do I have a lot of business expenses/vendors?

All of these things contribute to how you want to organize and manage your bookkeeping and accounts.

The more complex your business is, the higher the probability that you need to start using software better designed to help you manage your books effectively.

The last thing you want is to mess something up pay in more taxes than you actually owe.

Examples

Let’s say you’re business is network marketing and you only have the sales of your products. You then, can go in and print your report in your back office and only have the expense of conventions/travel and office supplies to enter in.

In this case, you would be safe with going with a  simple bookkeeping style like an Excel Spreadsheet or Google Sheet. That is, if you are advanced at using it and can put in the right formulas so the math is calculated right.

At the end of the week or month, print your PayPal or back office reports & fill it into your spreadsheet. Then, you are ready to reconcile with your banking statement and receipts to make sure all expenses are accounted for.

Walla!!

Your business would then be all up to date and furthermore, your CPA would do the work quarterly or yearly when you both agree it’s best for your business to file depending on your income throughout the year.

On the flipside…

If you have a contracting/consulting business with serval services and products you supply, many expenses, different forms of customer payments (PayPal, a payment software for your website, checks, & cash going to different accounts like a cash account (cashbox), PayPal account, business checking, and you have monthly/yearly fees for licensing and such then you would want to go with a better accounting software like  Quickbooks.com.

Utilizing software allows you to get really organized to see your profit-loss reports and budget for your expenses.

When using good software you can additionally, tag things to see what offers/projects they go along with to create better reports & tracking of your business endeavors.

With certainty, I say this because quarterly and at the end of the year it is much simpler to run your reports by clicking a button and knowing exactly where your business stands where as with a spreadsheet you are reliable for manually creating your own reports from reading the data.

It’s also easier for your CPA to file your taxes when you use software because he/she can just take the one report and enter all the things into the right categories and be done even if it is a lengthy report.

Management

When should you take the time to key in your transactions?

Bookkeeping can be managed daily, weekly, or monthly. The sooner you do it, the simpler it is.

My advice is to stay up to date and enter transactions daily or weekly and reconcile monthly.

Therefore, when you stay organized there is a lot less headache come the end of the year preparing for taxes.

The best way to be certain about your tax preparation and bookkeeping is to schedule a complimentary consult with a CPA to get advisement on your unique business accounting setup.

This should definitely take place within the first few hundred dollars your company makes.

Having a consult, allows you to set your software up so it works efficiently for all parties involved.

When in doubt do some networking and find a Bookkeeper & CPA you can consult and trust in.

Need Support?

Want more information and support on Bookkeeping?

Schedule a call with Marinda at M.E. Bookkeeping & she can answer any questions + get you headed in the right direction & keep you on track with your bookkeeping.

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